Please give us a bit of background on yourself, and how your organisation plays a leadership role in the impact investing space.

I am the Founder of the Carbon Tracker Initiative (Carbon Tracker) and am responsible for the ‘unburnable carbon’ capital markets thesis. My background is in sustainable financial markets and have worked for major institutional asset management companies co-founding of some of the first responsible investment funds including Jupiter Asset Management’s Ecology Funds, NPI’s Global Care, AMP’s Capital Sustainable Future Funds, and Henderson Global Investor’s Industries of the Future Funds. In 2011 I commissioned and edited the Unburnable Carbon – Are the World’s Financial Markets Carrying a Carbon Bubble? report that launched Carbon Tracker.

Carbon Tracker is a non-profit think-tank of energy analysis, finance professionals and communicators that was launched to pin-point with clarity how global capital markets have failed to identify a critical financial risk - climate - that has dangerous consequences for both society and investors. To meet climate goals a finite ‘carbon budget’ is in place to cap total emissions to keep within the scientific goal of two degrees of warming. To meet this goal emissions, and thus production of fossil fuels, will have to be constrained. However, investors have not been able to price this risk, having failed to recognise that finite limits to the growth of this global business sector. As a result investors are facing a ‘carbon bubble’. Carbon Tracker was the first to identify and quantify this risk and our mission is to align capital markets with the realities of climate change.

Our leading role and ground breaking research and leading role in this field has led to the launch of 350.org’s ‘Do the Math’ fossil fuel divestment campaign and the launch of ‘Divest-Invest’ philanthropy – www.divestinvest.org – whose signatories are committed to invest at least 5% of their capital into clean energy solutions.

How well are companies adapting to the mainstreaming of purpose-driven finance? What ways is impact investing making headway, and where is it lagging?

Companies are increasingly recognising that to attract capital and win the support of their shareholders, they have to address and meet a wider range of stakeholder interests, which include environmental and societal concerns. The rise of impact investing has changed the lens through which investors are looking about these issues. A company’s core purpose has to address a social or environmental need and there has to be intentionality about how these companies address their social mission.

Impact investing is making headway with the rise of new impact funds with capital chasing deals. Over $40 billion of capital has been raised and over 300 funds set up, according to ImpactBase’s latest statistics. More capital means more social or environmental challenges can be addressed, particularly in emerging markets. Where impact investing has lagged, is the lack of pooled collective investment schemes, with liquidity and open to the public, that can invest in the types of deals often found in private equity impact funds. So more support for initiatives such as www.socialstockexchange.com is needed and more closed ended stock exchange listed impact funds – which would allow ordinary investors to invest – are needed.

What challenges do you see for the future of purpose-driven finance?

Creating an effective marketplace for liquid investments in the impact space through pooled funds open to the public is probably the main one. Also, and keeping clear blue water between purpose driven investments with clear social or environmental ‘intent’ and mainstream ‘CSR’ driven companies. The logic that ‘all investment has impact’ leads to the logic-trap that therefore ‘all investments are impact investments’ which is absolutely not true. There is a risk that the impact space will be challenged to become a ‘broad church’ and expand its definition to allow in mainstream investments that tell a good CSR story.

How has impact and ESG-oriented investing evolved in recent years?

Impact has allowed for a focus on intentionality and core business model.  So for an impact investor concerned about say, eye diseases in India, the investor would look to invest in eye clinics in India. So a clear and direct response. An ESG orientated investor wouldn’t even know where to start. They might say: “Oh, this pharmaceutical company listed on the NYSE sells eye drops to India” or “this listed Indian company makes donations to eye clinics” but this isn’t really impact investing. The impact is in identifying what needs to be done – solving eye problems in this example - and investing in the solution. This miles away from ESG-oriented investing which, at the end of the day, is more about identifying whether ESG present material risks to investors, as opposed to seeing capital as a tool to solve social problems.

What will you be discussing at The Economist's Impact Investing event in London on June 15th?

I will be debating climate risks!
 

To learn more about the Impact Investing event, click here.
To register for the event, click here.